Reality’s on hold: In response to a global shift in the legal industry, forty-five percent of law firms may have opted for “no changes needed.”

Reality’s on hold: In response to a global shift in the legal industry, forty-five percent of law firms may have opted for “no changes needed.”

This month, legal management consultant Altman Weil released another in its series of surveys describing where we are (and aren’t) in the legal services industry.

There may be few surprises for those who have been paying attention as nearly everything about the legal profession changes. But I must admit to raised eyebrows as I read down into the Altman release accompanying the link to its “Law Firms in Transition” survey. Here’s what they report. I’ll stop when I get to the surprises:

“The fifth annual Law Firms in Transition Survey shows the evolution in thinking of law firm leaders on legal market trends and how firms are responding to market changes in 2013.”

“‘There have been some dramatic shifts in opinion about the business of law over the last few years, but a lot less tangible action,’ said Altman Weil principal and survey author, Tom Clay. ‘Most firms seem to be operating in a short-term, defensive mode driven by market threats rather than opportunities.’”

“Ninety-six percent of law firm leaders say they believe ‘more price competition’ is a permanent change in the legal market in 2013, according to the survey. Additionally, eight out of ten firm leaders think ‘more non-hourly billing’ is here to stay. In contrast, only 29% of leaders report that their firms have significantly changed their strategic approach to pricing since the recession.”

I’ll pause while you re-read that last sentence. Thinking it a typo, I had more than one go at it.

Back to the press release:

“Law firms’ primary response to pricing pressure appears to be discounts. The survey found that a median of 21% to 30% of legal fees are discounted. In firms with 250 or more lawyers, the median amount of fees discounted goes up to 31% to 40%.”

“‘Discounting is not a strategy,’ said Clay. ‘In fact, it undermines the idea of value and it’s a margin killer.’”

“Ninety-six percent of survey respondents also believe that a ‘focus on improved practice efficiency’ is a permanent change in the legal market. Ninety percent of leaders say there will be ‘more commoditization of legal work;’ and 79% expect ‘more competition from non-traditional service providers.’”

Ready for the one–two punch? Here is is:

“Despite this broad consensus, only 45% of leaders report their firms have made significant changes in strategic approach to efficient legal service delivery.”

That’s called burying the lede, Altman Weil! More than 90 percent of law firm respondents are able to identify serious structural challenges that face their industry. Then, with a steely gaze, only 45 percent have actually done anything to change their approach.

Altman Weil logoAm I reading that right?

Irony affects all professions, I suppose. But it is striking that in a field in which virtually all participants have sat through a course called “Evidence,” about half of them eschew evidence-based analyses.

Is that unfair? Perhaps the global changes sweeping the law field are somehow exempting half the law firms from the revolution. Please tell me I’m wrong to be surprised at the non-reaction.

In the meantime, “Law Firms in Transition: 2013” is available for download here.

A recently released survey sheds some light on law firm practice—its current status and future prognosis. Do its findings mirror your own experience?

Titled “Law Firms in Transition 2012,” the Altman Weil “flash survey” polled managing partners and chairs at 792 U.S. law firms with 50 or more lawyers. “Completed surveys were received from 238 firms (30%), including 40% of the 250 largest U.S. law firms.”

The executive summary provides a sober outlook of what’s ahead:

“The question is no longer whether to expect permanent changes in the competitive environment—those changes have arrived and are here to stay. Strong majorities of law firm leaders believe the practice of law will be permanently characterized by pricing pressures, further commoditization of legal work, new forms of competition and thus a need for improved practice efficiency.

“Firms have done the urgent things necessary to support profitability in the short term. Maintaining and growing profitability will be much more difficult going forward and will require addressing key elements of the business model.

“As for growth in volume, a return to the previous level of legal matters—if that occurs—will not result in previous levels of billable hours at high billing rates. The forces of commoditization have taken hold.”

I found some of the findings surprisingly specific and helpful. For example, the following broad conclusions were paired with specific findings:

  • “Opportunity still exists for firms that are willing to make the effort to figure out how to use alternative fee agreements effectively.”
  • “The pre-recession associate hiring binge is over, replaced by much more cautious and conservative hiring policies.”
  • “The retirement of the Baby Boom generation is a significant concern.”

Perhaps most interesting to me were the findings about hiring and training, for in almost no other area are lawyers and law students most affected. Altman Weil found:

“Firms continue to explore and invest in alternatives to hiring and developing newly minted lawyers:

  • Nearly a quarter of firms intend to increase their number of non-partner-track associates in 2012.
  • More than 80% of firms plan to maintain or increase their number of contract lawyers and paralegals in 2012, who in many cases will do work that associates used to do.
  • Two-thirds of firms (66%) think increased use of contract lawyers is a permanent trend—a 14-point jump since 2010.
  • Looking five years ahead, firms expect more reductions in partner-track associates than in non-partner-track associates or paralegals.”

In what may be one of the most candid bits of law writing to be penned in 2012, the researchers added:

“The cost of training will shift from the backs of clients to law firms. ‘Accidental training’ while billing huge numbers of hours is not a workable strategy going forward. Clients won’t allow it.”

“Accidental training”—you’ve got to love that.

Another helpful commentator reviewed the survey results and concluded:

“The 2012 Law Firms in Transition Survey reports that 92% of law firm leaders believe that more price competition will be a permanent fixture of the post-recession legal marketplace. This is more than twice the 42% who thought so in 2009 when the survey was first conducted.

“In 2012, 84% of firm leaders think more commoditization of legal work will be a permanent change, while only 26% of those surveyed thought that was the case in 2009. In 2012, 68% of firm leaders believe that there will be fewer equity partners in law firms than in the past, up from 23% who held that opinion three years ago. Today 55% of respondents think smaller first-year classes are a permanent trend, compared to a mere 11% who thought so in 2009.”

The survey also asked about confidence levels among law firm leaders, and their concerns for the future. Chapter coverage includes a focus on clients; economics and profitability; alternative fees; lawyers and staff; growth; and succession planning.

The complete Altman Weil survey may be downloaded and read here.

Do these findings reflect your own experience, and your own predictions? Even if you’re uncertain how to respond to its findings on hiring and the like, what do you think about “the forces of commoditization”? Are clients more likely to see legal work as a commodity today? And what outcomes flow from that?